An essential characteristic of good corporate governance is appropriate disclosure of material risks and opportunities by companies to their shareowners. Such disclosure allows investors to make better informed decisions about the companies in which they invest.

This is why much of First Affirmative's advocacy work focuses on disclosure practices. One particular area of focus is disclosure of political spending, including donations made through third parties.

However, such requests are being recast by some as an attempt to stifle "corporate free speech." From our perspective, disclosure of political spending does not prevent a company from having a voice. It simply requires the company to be transparent about its position to its shareowners.

Many Companies "Get It"

A recent survey by the Center for Political Accountability (CPA) indicates that companies are increasingly inclined to report on their political activities. In fact, about half of the S&P 500 companies provide at least some reporting on their political activities. CPA President, Bruce Freed, believes that "companies are recognizing disclosure as good governance. Disclosure means that companies and shareholders know how their money is being used."

Companies that do not adequately evaluate political spending objectives or candidate positions before risking corporate dollars may find themselves subject to reputational risk, or find that the benefits sought by the political spending are not worth the price paid.

Disclosing companies include Fifth Third and Cerner. First Affirmative filed resolutions with both companies asking for increased transparency regarding political spending and spending policies, and both responded after productive discussion. Both of these companies now disclose information about donations made through third parties that would otherwise remain hidden.

The Risks of Hidden Spending

When companies donate funds to trade and other organizations for political purposes they delegate important spending decisions to outside parties that may not have the same priorities as the company and its shareholders. Because the spending is anonymous, controversial spending that does become public will likely be damaging.

For example, Target funded Minnesota Forward, which in turn created an ad campaign in support of an anti-gay gubernatorial candidate. Target is very supportive of LGBT rights and regularly scores 100% on the Human Rights Watch Campaign's Corporate Equality Index which rates American Workplaces on Lesbian, Gay, Bisexual, and Transgender Equality. However, the company suffered reputational damage and compromised their relationship with many employees when the contribution came to light. And subsequently, Target was penalized by 15 points in the 2011 Corporate Equality Index. In hindsight, this $150,000 expenditure was a bad investment.

Another example: Arizona Public Service (APS), a subsidiary of Pinnacle West, has been embroiled in a controversy stemming from its ongoing political spending on anti-solar candidates and anti-solar policies in Arizona since 2013. First Affirmative joined with As You Sow and Calvert Investments to file a political spending disclosure resolution that asks for more disclosure and questions the company's anti-solar activities, given Arizona's position as a solar energy leader. The resolution earned over 30% support from shareowners.

In each of these cases, improved corporate oversight and disclosure may have prevented these expensive reputation damaging missteps.

Trade Associations Advocate Secrecy

Three of the biggest trade associations are determined to hinder further progress. A recent Huffington Post article discusses the ongoing collaboration between the U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers to convince their member companies that disclosure is a threat to the bottom line and to corporate political engagement. As a result, they are sending joint letters to Fortune 500 companies warning them about shareowners—including First Affirmative—presenting disclosure resolutions.

One letter clearly states that the goal of shareowners is to "…limit or remove altogether the business voice from the political and policymaking processes." This is simply false. Secret donations do not enhance freedom of speech and in fact serve to undermine the democratic political process. Moreover, the Citizens United decision actually came with the expectation that disclosure and shareowner accountability would increase as corporate political spending was anticipated to increase.

Former SEC Commissioners Support Disclosure

On May 27th, a bipartisan group of former SEC commissioners lent their support to disclosure in a strongly worded letter to the current chairman, Mary Jo White, taking the agency to task for their failure to implement rules mandating political activity disclosure:

"The Commission's inaction is inexplicable. Its failure to act offends not only us, who are alumni of this agency struggling to retain our deep pride of association, but investors and the professionals who serve them. And it flies in the face of the primary mission of the Commission, which has since 1934 been the protection of investors. To use a metaphor, mandatory disclosure of corporate political activities should be a "slam dunk" for the Commission."

We can only hope that this strong endorsement from former commissioners will move the SEC to act.

In the meantime, First Affirmative remains fully committed to advocacy efforts that will encourage more and more companies to disclose their political activities. To learn more about our shareowner advocacy efforts and the proxy voting process, check out the Shareowner Advocacy page of the First Affirmative website.

First Affirmative understands that the ways we save, spend, and invest can dramatically influence both the fabric and consciousness of society. We believe that in addition to the benefits of ownership, investors bear responsibility for the impact our money has in the world. Are you making conscious decisions about the impact of your consumer purchase and investment decisions?

NOTE: Mention of specific companies or securities should not be considered an endorsement or a recommendation to buy or sell that security. Past performance is no guarantee of future results.